Accounting can be classified into four types as given below:
1. Operation Information
By operating information, we mean the information which is required to conduct the day-to-day activities. Examples of operating information are: Amount of wages paid and payable to employees, information about the stock of finished goods available for sale and each one’s cost and selling price, information about amounts owed to and owing by the business enterprise, information about stock of raw materials, spare parts and accessories and so on. By far the largest quantity of accounting information provides the raw data (input) for financial accounting, management accounting and cost accounting.
Financial accounting information is intended both for owners and managers and also for the use of individuals and agencies external to the business. This accounting is concerned with the recording of transactions for a business enterprise and the periodic preparation of various reports from such records. The records may be for general purpose or for a special purpose. A detailed account of the function of financial accounting has been given earlier in this lesson.
Management accounting employs both historical and estimated data in assisting management in daily operations and in planning for future operations. It deals with specific problems that confront enterprise managers at various organizational levels. The management accountant is frequently concerned with identifying alternative courses of action and then helping to select the best one. For e.g. the accountant may help the finance manager in preparing plans for future financing or may help the sales manager in determining the selling price to be fixed on a new product by providing suitable data. Generally management accounting information is used in three important management functions: (1) control (2) co-ordination and (3) planning. Marginal costing is an important technique of management accounting which provides multi-dimensional information that facilitates decision making.
The Industrial Revolution in England posed a challenge to the development of accounting as a tool of industrial management. This necessitated the development of costing techniques as guides to management action. Cost accounting emphasizes the determination and the control of costs. It is concerned primarily with the cost of manufacturing processes. In addition one of the principal functions of cost accounting is to assemble and interpret cost data, both actual and prospective, for the use of management in controlling current operations and in planning for the future. All of the activities described above are related to accounting and in all of them the focus is on providing accounting information to enable decisions to be made.